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Political issues or factors influencing availability and price of raw materials

Political issues or factors influencing availability and price of raw materials

27 September 2018
by Moellhausen

Every day, the Flavor and Fragrance Industry serves a huge number of businesses that totally differ from each other, which may be included in different political frameworks and may have different regulatory priorities.

Moreover, environmental protection and safeguard, biodiversity, welfare, health and public safety are high priority aspects of the Countries’ political agendas, thus influencing commercial relationships, regulation of the products, trading of raw materials —prices, availabilities, forecasting and supply plans — and, consequently, the F&F Buyer’s purchase strategies.

The wise Buyer constantly monitors the political dynamics of this extremely complex framework, keeping up-to-date about agreements and regulations within the Countries and industrial sectors whom he trades directly and indirectly with, at different steps of the production chain.

In order to promptly respond to procurement emergencies and to catch opportunities, the most relevant political issues to consider are:

  • Restrictions on the use of specific materials  
  • Local and global environmental policies
  • Trade agreements between Countries
  • Embargoes and wars

 

Restrictions on the use of specific materials

The regulatory framework (environment and processes) within the Flavor and Fragrance Industry is very complex, with more than 4,000 different raw materials and a mix of various opposing interests from the business, the consumers, the global sustainability, the national legislative agendas, etc.

Regulatory bodies and authorities, like EU and American FDA, are firstly concerned about public health: their priority is to ensure that all the products imported or produced within the member Countries are compliant with defined standards and that the raw materials included in the products are “labeled” and controlled as suitable for use.

Lists of allowed ingredients are constantly updated: different authorities release updates on banned or restricted materials, while other industrial organizations and third-party bodies frequently issue new guidelines, good practice prescriptions and codes of conduct. For example, IFRA Code of Practice (CoP) lists the substances (both natural and synthetic) that are either prohibited or restricted to a percentage threshold in consumer products. IFRA is also responsible for setting purity requirements for some fragrance ingredients.

More about IFRA, EU and the main features of the fragrance regulatory environment here

When the use of some specific materials is restricted or banned, there may be huge consequences to cope with on the supply and manufacturing chain. As an example, EU has recently banned the use of Lyral within fragrance formulations, due to the high number of contact allergies reported. Lyral was much used as a fragrance ingredient, the reason why the fragrance suppliers and fragrance compounders started reformulation activities to develop new replacing materials.

More about reformulation and “simplification” activities here.

 

Local or global environmental policies

New social and scientific achievements, and the evolving vision of Countries about the progress have significant impact on the regulatory framework that governs the Flavor and Fragrance Industry. This regulatory framework is in constant change —locally and internationally —, following hardly predictable timings and tangled logics, mainly in connection with Countries’ plans for the economical growth, the energy use, the biodiversity safeguard, and the environmental protection.

Coming to the point, new government policies of each Country can change radically the global context and the access to raw materials, slowing down or paralyzing the trading activity.

As an example, in 2017 China started implementing a restrictive environmental policy to fight pollution, taking severe measures in order to deter polluters and decrease the level of air pollution by the beginning of next winter. 
In 2013, the Chinese Government first tried to tackle domestic pollution, aiming at cleaning the air and reducing emissions from heavily polluting factories. In 2017, safety inspections throughout the Country have been ordered and 40% of the plants have been temporarily or permanently shut down. According to Chinese media and journals, in autumn 2017 more than 18,000 polluting companies were sanctioned, with about 870 million yuan (US$ 132.2 million) fines and more than 12,000 officials disciplined.

Such events inevitably bring uncertainty, instability and concern within the market of flavor and fragrance materials.

 

Trade agreements between Countries

Trade agreements between different Countries or groups of Countries can affect the availability of aroma chemicals and essential oils. For instance, in case of a foreign debt, particular trade agreements can be set with creditor Countries in order to favor them the access to raw materials. And easier access to raw materials becomes a business opportunity also when it is exchanged for prolonged credit extensions.

 

Embargoes and wars

Sometimes, political instability, wars and conflicts of economic nature unfortunately prevail over the reasonable extra-frontier collaboration, and may influence both the production and the supply chain of flavor and fragrance materials.

Nowadays, there is a lot of instability brought into the market by the alternate winds of trade wars, periodically bouncing from one continent to another. In such context, it is difficult to foreseen the consequences on the exchange rate and on the availability of raw materials. 

Also the presence of international financial sanctions and embargoes —either temporary or prolonged — complicates the trade. The supply of products becomes problematic, impossible or financially unproductive, risking to compromise and to freeze the relationship with other Countries in the medium/long term.

 

Tools for the modern Buyer

All the previously mentioned events are not completely unexpected. A constant monitoring of the international political news through the main information channels is one of the most important investments the Buyer has to make.

As already suggested in our blog post “Industrial factors influencing availability and price of raw materials”, the use of apps like Feedly and Flipboard can be very helpful for the Buyer. These apps create a set of folders corresponding to the topics, the Country or the global region the Buyer wants to follow, selecting the most reliable sources on the web, from which to receive information. Every day the apps will provide the user with a list of articles on the topics of his interest, in a sort of "personalized newspaper”, updated in real-time.

 

GENERAL DISCLAIMER
Although the information contained in this document is presented in good faith and believed to be correct, Moellhausen makes no representations or warranties as to the completeness or accuracy of the information. This document is provided on an “as is” basis. No representations or warranties, either express or implied, of fitness for a particular purpose are made herein with respect to information or products to which information refers. Moellhausen shall not be liable for any irresponsible, improper or illegal use, direct or indirect, of the information or the products represented herein and it shall not be liable for any damage arising from any use in connection therewith. 

©Copyright 2018, by Moellhausen S.p.A – All Rights Reserved. Any review, retransmission, spreading or other unauthorized use of, or taking of any action in reliance upon, this information is prohibited.

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